Complex interactions between signaling molecules, extracellular matrix components and secreted proteases regulate tissue structure, function and homeostasis. This proposal is founded on a recently established paradigm for the regulation of extra cellular signaling by matrix metalloprotease (MMP) - mediated mechanisms. Drosophila Mmp2 cleaves the heparin sulfate proteoglycan (HSPG) Dally, to convert it from a cell surface bound co receptor that supports FGF-R signaling to a soluble inhibitor of FGF. This mechanism controls branching morphogenesis in Drosophila larvae, but may also modulate other FGF- dependent processes, including epithelial-mesenchymal interactions, patterning by developmental organizers, and tissue remodeling. Many extracellular signaling molecules in addition to FGF are regulated by interactions with HSPGs, (Heparin binding growth factors, VEGF, HIV-TAT, Wnt, Hh, TGF-2). It is conceivable that the function of these proteins might also be influenced by the mechanism proposed here. The experimental plan will explore the mechanistic basis of the interaction between Mmp2 and Dally using cell culture assays established by the applicant. These experiments will provide insight into the structure-function relationships in cell surface bound matrix metalloproteases and may yield general information on the mechanisms governing the regulatory specificity of MMPs. In vivo experiments will explore the regulatory interplay between MMPs, HSPGs, and FGF and will test the hypothesis that proteolytic fragments of Dally can act as specific regulators of extracellular signaling, patterning and organ formation. In a final aim the findings made in cell culture and in fruit flies will be taken into two mammalian systems to ask whether the proteolysis- based regulatory mechanism characterized here might be exploited to reverse the effects of oncogenic FGF signaling. The experimental plan of the proposal benefits from the powerful genetic and imaging tools available in Drosophila. A further advantage of the fruit fly system is the much-reduced genetic redundancy of MMPs (2 mmp genes in Drosophila vs. 26 in mammals). The experimental advantages of Drosophila are complemented by the cancer relevance provided by the mammalian models of FGF-dependent tumor formation.